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 Class XI Business Studies

Chapter 4 Business Services

Revision Notes

Goods

• A good is a physical product capable of being delivered to a purchaser and involves the transfer
of ownership from seller to customer

Services

• Services are those separately identifiable, essentially intangible activities that provides
satisfaction of wants, and are not necessarily linked to the sale of a product or another service

Nature of Services

Intangibility

Involvement Inconsistency

Inventory Inseperability

1. Intangibility

• They cannot be touched. They are experiential in nature

• Quality of the offer can often not be determined before consumption
• Service providers should consciously work on creating a desired service so that the customer
undergoes a favourable experience

2. Inconsistency

• There is no standard tangible product, services have to be performed exclusively each time.
• Different customers have different demands and expectations.
• Service providers need to have an opportunity to alter their offer to closely meet the
requirements of the customers.

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 Study Materials
NCERT Solutions for Class 6 to 12 (Math & Science)
Revision Notes for Class 6 to 12 (Math & Science)
RD Sharma Solutions for Class 6 to 12 Mathematics
RS Aggarwal Solutions for Class 6, 7 & 10 Mathematics
Important Questions for Class 6 to 12 (Math & Science)
CBSE Sample Papers for Class 9, 10 & 12 (Math &
Science)
Important Formula for Class 6 to 12 Math
CBSE Syllabus for Class 6 to 12
Lakhmir Singh Solutions for Class 9 & 10
Previous Year Question Paper
CBSE Class 12 Previous Year Question Paper
CBSE Class 10 Previous Year Question Paper
JEE Main & Advanced Question Paper
NEET Previous Year Question Paper

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3. Inseparability

• Simultaneous activity of production and consumption makes the production and consumption
of services seem to be inseparable
• Services have to be consumed as and when they are produced.
• Service providers may design a substitute for the person by using appropriate technology but
the interaction with the customer remains a key feature of services.

4. Inventory

• Services cannot be stored for a future use. That is, services are perishable and providers can, at
best, store some associated goods but not the service itself.
• This means that the demand and supply needs to be managed as the service has to be
performed as and when the customer asks for it.
• They cannot be performed earlier to be consumed at a later date.

5. Involvement

• Characteristic of service is the participation of the customer in the service delivery process.
• A customer has the opportunity to get the services modified according to specific requirements

Difference Between Goods and Services

Basis Services Goods

Nature An activity or process. e.g.,
watching a movie in a cinema
hall
Type Heterogeneous
Intangibility Intangible e.g., doctor
treatment
Inconsistency Different customers having
different demands e.g., mobile
services
Inseparability Simultaneous production and
consumption. e.g., eating ice-
cream in a restaurant
Inventory Cannot be kept in stock. e.g.,
experience of a train journey
Involvement Participation of customers at
the time of service delivery.
e.g., self-service in a fast food
joint
A physical object. e.g., video
cassette of movie
Homogenous
Tangible e.g., medicine
Different customers getting
standardised demands fulfilled.
e.g., mobile phones
Separation of production and
consumption. e.g., purchasing
ice cream from a store
Can be kept in stock. e.g., train
journey ticket
Involvement at the time of
delivery not possible. e.g.,
manufacturing a vehicle

Types of Services

1. Business Services:

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 Business services are those services which are used by business enterprises for the conduct of
their activities. For example, banking, insurance, transportation, warehousing and
communication services

2. Social Services:
Social services are those services that are generally provided voluntarily in pursuit of certain
social goals. These social goals may be to improve the standard of living for weaker sections of
society, to provide educational services to their children, or to provide health care and hygienic
conditions in slum areas. For example, health care and education services provided by certain
Non-government organisations (NGOs) and government agencies.

3. Personal Services:
Personal services are those services which are experienced differently by different customers.
These services cannot be consistent in nature. They will differ depending upon the service
provider. They will also depend upon customer’s preferences and demands. For example,
tourism, recreational services, restaurants.

Banking
• A banking company in India is the one which transacts the business of banking which means
accepting, for the purpose of lending and investment of deposits of money from the public,
repayable on demand or otherwise and withdrawable by cheques, draft, order or otherwise.
• In simple terms, a bank accepts money on deposits, repayable on demand and also earns a
margin of profit by lending money

Types of Banks

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 Commercial Banks Cooperative Banks Specialised Banks Central Bank

•These are governed by •Cooperative Banks are •Specialised banks are •The Central bank of any
Indian Banking governed by the foreign exchange banks, country supervises,
Regulation Act 1949 and provisions of State industrial banks, controls and regulates
according to it banking Cooperative Societies development banks, the activities of all the
means accepting Act export-import banks commercial banks of
deposits of money from •It is meant essentially catering to specific that country
the public for the for providing cheap needs of these unique •It controls and
purpose of lending or credit to their members activities coordinates currency
investment. •They provide financial and credit policies of
•There are two types of aid to industries, heavy any country. The
commercial banks, turnkey projects and Reserve Bank of India is
public sector and private foreign trade the central bank of our
sector banks. country.
•Public sectors banks are
those in which the
government has a major
are a number of public
sector banks like SBI,
PNB, IOB etc
•Other private sector
banks represented by
HDFC Bank, ICICI Bank,
Kotak Mahindra Bank

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Functions of Commercial Banks

Acceptance of deposit
•Deposits are the basis of the loan operations since banks are both borrowers and lenders of
money. As borrowers they pay interest and as lenders they grant loans and get interest.
•These deposits are generally taken through current account, savings account and fixed deposits.
•Current account deposits can be withdrawn to the extent of the balance at any time without any
prior notice
•Fixed accounts are time deposits with higher rate of interest as compared to the savings
accounts.
•A premature withdrawal is permissible with a percentage of interest being forfeited

Cheque Facility
•The cheque is the most developed credit instrument, a unique feature and function of banks for
the withdrawal of deposits. It is the most convenient and an inexpensive medium of exchange.
•There are two types of cheques:
•bearer cheques, which are encashable immediately at bank counters and
•crossed cheques which are to be deposited only in the payees account
Lending of Funds
•Provide loans and advances out of the money received through deposits.
•These advances can be made in the form of overdrafts, cash credits, discounting trade bills, term
loans, consumer credits and other miscellaneous advances.
Remittance of Funds
•Provides the facility of fund transfer from one place to another, on account of the
interconnectivity of branches.
•The transfer of funds is administered by using bank drafts, pay orders or mail transfers, on
nominal commission charges.

Allied Services
•Such as bill payments, locker facilities, underwriting services
•They also perform other services like buying and selling of shares and debentures on instructions
and other personal services

E-banking

• Online banking also known as internet banking, e-banking, or virtual banking, is an electronic
payment system that enables customers of a bank or other financial institution to conduct a
range of financial transactions through the financial institution's website.
• Internet banking is a term used to describe the process whereby a client executes banking
transactions via electronic means.

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 • This type of banking uses the internet as the chief medium of delivery by which banking
activities are executed

Benefits of E-Banking

1. E-banking facilitates digital payments and promotes transparency in financial statements

2. Banks that offer internet banking are open for business transactions anywhere a client might be
as long as there is internet connection (Apart from periods of website maintenance)
3. E-banking helps in reducing the operational costs of banking services. Better quality services can
be ensured at low cost.
4. Lower operating cost results in higher interest rates on savings and lower rates on mortgages
and loans offers from the banks. Some banks offer high yield certificate of deposits and don’t
penalize withdrawals on certificate of deposits, opening of accounts without minimum deposits
and no minimum balance.
5. Online banking allows automatic funding of accounts from long established bank accounts via
electronic funds transfers.
6. A client can monitor his/her spending via a virtual wallet through certain banks and applications
and enable payments.
7. The speed of transaction is faster relative to use of ATM’s or customary banking.
8. The credit cards and debit cards enables the Customers to obtain discounts from retail outlets.
9. E-Banking helps the bank to provide efficient, economic and quality service to the customers. It
helps the bank to create new customer and retaining the old ones successfully
10. The customer can obtain funds at any time from ATM machines

Insurance

• Insurance is thus a device by which the loss likely to be caused by an uncertain event is spread
over a number of persons who are exposed to it and who prepare to insure themselves against
such an event.
• It is a contract or agreement under which one party agrees in return for a consideration to pay
an agreed amount of money to another party to make a loss, damage or injury to something of
value in which the insured has a pecuniary interest as a result of some uncertain event.
• The agreement/contract is put in writing and is known as ‘policy’.
• The person whose risk is insured is called ‘insured’ and the firm which insures the risk of loss is
known as insurer/ assurance underwriter

Fundamental Principle of Insurance

• Insurance is the substitution of a small periodic payment (premium) for a risk of large possible
loss.
• The loss of risk still remains but the loss is spread over a large number of policyholders
• exposed to the same risk.
• The premium paid by them are pooled out of which the loss sustained by any policy holder

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 • is compensated. Risks are shared with others

Functions of Insurance

Certainty Protection Risk Sharing Capital

•Insurance removes •Protection from •The loss is shared by Formation
these uncertainties probable chances of all the persons •Accumulated funds
and the assured loss. exposed to it. of the insurer
receives payment of •Insurance cannot •The share is received by way of
loss. stop the happening obtained from every premium payments
• The insurer charges of a risk or event but insured member by made by the insured
premium for can compensate for way of premiums. are invested in
providing the losses arising out of various income
certainity it. generating schemes

Principles of Insurance

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 •Insurance contracts also require that both parties act with the utmost good
faith. This means that both parties must accurately and fully disclose all material
information. This not only ensures fairness, but also helps insurance companies
Utmost Good Faith
accurately price premiums for insurance applicants. Insurance policies can be
declared null and void if an applicant made a misrepresentation of material fact
that was relied on by the insurance company.

•The insurable interest principle requires that the owner of a particular insurance
policy have an ownership interest in the particular subject matter of the
Insurable Interest
insurance policy. The absence of an insurable interest can make the insurance
policy in question null and void.

•The principle of indemnity ensures that an insurance contract protects you from
and compensates you for any damage, loss, or injury. The purpose of an
Indemnity insurance contract is to make you "whole" in the event of a loss, not to allow
you to make a profit. Thus, the amount of your compensation for a loss is
directly related to the amount of loss that you actually suffered.

•The principle of proximate cause, or nearest cause, comes into play when more
than one event or bad actor causes an accident or injury. The insurance principle
Proximate Cause
of proximate cause dictates that nearest or closest cause should be taken into
consideration to decide the liability.

•Subrogation means that one party stands in for another. In the insurance
context, subrogation will arise if you are injured by a negligent third party, and
your insurance company reimburses you for your damages. Under the principle
Subrogation of subrogation, your insurance company can stand in your shoes and recover the
pay-out from the negligent party. The goal of this principle is to encourage
responsibility and accountability by holding negligent parties responsible for
injuries they cause.

•Principle of Contribution is a corollary of the principle of indemnity. It applies to

all contracts of indemnity, if the insured has taken out more than one policy on
the same subject matter. According to this principle, the insured can claim the
Contribution
compensation only to the extent of actual loss either from all insurers or from
any one insurer. If one insurer pays full compensation then that insurer can
claim proportionate claim from the other insurers.
•As the owner of an insurance policy, you have an obligation to take necessary
Mitigation steps to minimize the loss of your insured property. The law doesn't allow you to
be negligent or irresponsible just because you know you're insured

Types of Insurance

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• Life Insurance
▪ Life insurance may be defined as a contract in which the insurer in consideration
of a certain premium, either in a lump sum or by other periodical payments,
agrees to pay to the assured, or to the person for whose benefit the policy is
taken, the assured sum of money, on the happening of a specified event
contingent on the human life or at the expiry of certain period.
▪ This agreement or contract which contains all the terms and conditions is put in
writing and such document is called the policy.
▪ The person whose life is insured is called the assured.
▪ The insurance company is the insurer and the consideration paid by the assured
is the premium.
▪ The premium can be paid periodically in instalments

o Features of Life Insurance are as follows:

▪ The life insurance contract must have all the essentials of a valid contract
▪ The contract of life insurance is a contract of utmost good faith. The assured
should be honest and truthful in giving information to the insurance company
▪ In life insurance, the insured must have insurable interest in the life assured
▪ Life insurance contract is not a contract of indemnity. The life of a human being
cannot be compensated and only a specified sum of money is paid

o Types of Life Insurance Policies:

▪ Whole Life Policy: In this kind of policy, the amount payable to the insured will
not be paid before the death of the assured. The sum then becomes payable
only to the beneficiaries or heir of the deceased.
▪ Endowment Life Assurance Policy: The insurer undertakes to pay a specified
sum when the insured attains a particular age or on his death whichever is
earlier. The sum is payable to his legal heir/s or nominee named therein in case
of death of the assured. Otherwise, the sum will be paid to the assured after a
fixed period
▪ Joint Life Policy: This policy is taken up by two or more persons. The premium is
paid jointly or by either of them in instalments or lump sum assured sum or
policy money is payable upon the death of any one person to the other survivor
or survivors
▪ Annuity Policy: The assured sum or policy money is payable after the assured
attains a certain age in monthly, quarterly, half yearly or annual instalments
▪ Children’s Endowment Policy: This policy is taken by a person for his/ her
children to meet the expenses of their education or marriage. The agreement
states that a certain sum will be paid by the insurer when the children attain a
particular age

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• Fire Insurance
▪ Fire insurance is a contract whereby the insurer, in consideration of the
premium paid, undertakes to make good any loss or damage caused by fire
during a specified period upto the amount specified in the policy.
▪ Normally, the fire insurance policy is for a period of one year after which it is to
be renewed from time to time
▪ A claim for loss by fire must satisfy the two following conditions:
(i) There must be actual loss; and
(ii) Fire must be accidental and nonintentional

o Features of Fire Insurance

▪ The insured must have insurable interest in the subject matter of the
insurance. Without insurable interest the contract of insurance is void
▪ The insured should be truthful and honest (Utmost Good Faith) in giving
information to the insurance company regarding the subject matter of the
insurance
▪ The contract of fire insurance is a contract of strict indemnity. The insured
can, in the event of loss, recover the actual amount of loss from the insurer.
This is subject to the maximum amount for which the subject matter is
insured
▪ The insurer is liable to compensate only when fire is the proximate cause of
damage or loss.

• Marine Insurance
▪ A marine insurance contract is an agreement whereby the insurer undertakes to
indemnify the insured in the manner and to the extent thereby agreed against
marine losses.
▪ Marine insurance provides protection against loss by marine perils or perils of
the sea.
▪ Three Things involved:
• Ship or hull insurance: Since the ship is exposed to many dangers at sea,
the insurance policy is for indemnifying the insured for losses caused by
damage to the ship.
• Cargo insurance: The cargo while being transported by ship is subject to
many risks
• Freight insurance: If the cargo does not reach the destination due to
damage or loss in transit, the shipping company is not paid freight
charges

o Features of Marine Insurance

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 ▪ The contract of marine insurance is a contract of indemnity. The insured
can, in the event of loss recover the actual amount of loss from the insurer
▪ The contract of marine insurance is a contract of utmost good faith. Both
the insured and insurer must disclose everything, which is in their
knowledge and can affect the insurance contract.
▪ Insurable interest must exist at the time of loss but not necessary at the
time when the policy was taken
▪ The principle of causa proxima will apply to it. The insurance company will
be liable to pay only if that particular or nearest cause is covered by the
policy

Communication Services

• Business does not exist in isolation, it has to communicate with others for transmission of ideas
and information.
• Communication services need to be very efficient, accurate and fast for them to be effective. In
this fast moving and competitive world it is essential to have advanced technology for quick
• exchange of information.
• The electronic media is mainly responsible for this transformation.
• The main services which help business can be classified into postal and telecom.

Postal Services

• Indian post and telegraph department provides various postal services across India
• Through their regional and divisional level arrangements the various facilities provided by postal
department are broadly categorised into:
o Financial facilities: These facilities are provided through the post office’s savings
schemes like Public Provident Fund (PPF), Kisan Vikas Patra, and National Saving
Certificate
o Mail facilities: Mail services consist of parcel facilities that is transmission of articles
from one place to another; registration facility to provide security f the transmitted
articles and insurance facility to provide insurance cover for all risks in the course of
transmission by post
o Allied Facilities: Greeting post, media post, International money transfer, speed post,
passport facilities, e-bill

Telecom Services

• World class telecommunications infrastructure is the key to rapid economic and social
development of the country

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 o Types of telecom services are:
▪ Cellular mobile services: These are all types of mobile telecom services
including voice and non-voice messages, data services and PCO services utilising
any type of network equipment within their service area.
▪ Fixed line services: These are all types of fixed services including voice and non-
voice messages and data services to establish linkages for long distance traffic.
These utilise any type of network equipment primarily connected through fiber
optic cables
▪ Cable services: These are linkages and switched services within a licensed area
of operation to operate media services, which are essentially one-way
entertainment related services.
▪ VSAT services: VSAT (Very Small Aperture Terminal) is a satellite-based
communications service. It offers businesses and government agencies a highly
flexible and reliable communication solution in both urban and rural areas.
▪ DTH services: DTH (Direct to Home) is again a satellite-based media services
provided by cellular companies. One can receive media services directly through
a satellite with the help of a small dish antenna and a set top box.

Transportation

• Transportation comprises freight services together with supporting and auxiliary services by all
modes of transportation i.e., rail, road, air and sea for the movement of goods and international
carriage of passengers
• Transportation removes the hindrance of place, i.e., it makes goods available to the consumer
from the place of production
• Both government and industry needs to be proactive and view the effective functioning of this
service as a necessity for providing a lifeline to a business services

Warehousing

• Storage has always been an important aspect of economic development. The warehouse was
initially viewed as a static unit for keeping and storing goods in a scientific and systematic
manner so as to maintain their original quality, value and usefulness
• Warehouses have ceased to be a mere storage service providers and have really become
logistical service providers in a cost efficient manner
• This makes available the right quantity, at the right place, in the right time, in the right physical
form at the right cost

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 Types of Warehouses:

Bonded Government Cooperative

Private Warehouse Public Warehouse
Warehouse Warehouse Warehouse
•Private •Public warehouses •Bonded •These warehouses •Some marketing
warehouses are can be used for warehouses are are fully owned cooperative
operated, owned storage of goods licensed by the and managed by societies or
or leased by a by traders, government to the government. agricultural
company handling manufacturers or accept imported •The government cooperative
their own goods, any member of goods prior to manages them socities have set
such as retail chain the public after payment of tax through up their own
stores or multi- the payment of a and customs duty. organisations set warehouses for
brand multi- storage fee or •These are goods up in the public members of their
product charges. which are sector cooperative
companies. •The government imported from society
•The benefit of regulates the other countries.
private operation of these Importers are not
warehousing warehouses by permitted to
includes control, issuing licences remove goods
flexibility, and •Benefits include from the docks or
other benefits like flexibility in the the airport till
improved dealer number of custom duty is
relations. locations, no fixed paid
cost and capability
of offering value
added services,
like packaging and
labelling.

Functions of Warehousing

1. Consolidation:

The warehouse receives and consolidates, materials/goods from different production plants and
dispatches the same to a particular customer on a single transportation shipment.

2. Break the bulk:

The warehouse performs the function of dividing the bulk quantity of goods received from the
production plants into smaller quantities. These smaller quantities are then transported according to the
requirements of clients to their places of business.

3. Stock piling:

The next function of warehousing is the seasonal storage of goods to select businesses. Goods or raw
materials, which are not required immediately for sale or manufacturing, are stored in warehouses.
They are made available to business depending on customers’ demand

4. Value added services:

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Certain value added services are also provided by the warehouses, such as in transit mixing, packaging
and labelling. Goods sometimes need to be opened and repackaged and labelled again at the time of
inspection by prospective buyers

5. Price stabilization:

By adjusting the supply of goods with the demand situation, warehousing performs the function of
stabilizing prices. Thus, prices are controlled when supply is increasing and demand is slack and vice
versa

6. Financing:

Warehouse owners advance money to the owners on security of goods and further supply goods on
credit terms to customers

Difference Between Life Insurance, Marine Insurance And Fire Insurance

BASIS LIFE INSURANCE FIRE INSURANCE MARINE INSURANCE

SUBJECT MATTER The subject matter of The subject matter is The subject matter is a
insurance is human life. any physical property ship, cargo or freight
or assets.
ELEMENT Life Insurance has the Fire insurance has only Marine insurance has
elements of protection the element of only the element of
and investment or protection and not the protection
both. element of investment.
INSURABLE INTEREST Insurable interest must Insurable interest on Insurable interest must
be present at the time the subject matter be present at the time
of effecting the policy must be present both when claim falls due or
but need not be at the time of effecting at the time of loss only
necessary at the time policy as well as when
when the claim falls the claim falls due.
due.
DURATION Life insurance policy Fire insurance policy Marine insurance
usually exceeds a year usually does not policy is for one or
and is taken for longer exceed a year. period of voyage or
periods ranging from 5 mixed
to 30 years or whole
life
INDEMNITY Life insurance is not Fire insurance is a Marine insurance is a
based on the principle contract of indemnity. contract of indemnity.
of indemnity. The sum The insured can claim The insured can claim
assured is paid either only the actual amount the market value of the
on the happening of of loss from the ship and cost of goods
certain event or on insurer. The loss due to destroyed at sea and
maturity of the policy. the fire is indemnified the loss will be
subject to the indemnified

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 maximum limit of the
policy amount.
LOSS MEASUREMENT Loss is not measurable. Loss is measurable. Loss is measurable
SURRENDER VALUE OR Life insurance policy Fire insurance does not Marine insurance does
PAID UP VALUE has a surrender value have any surrender not have any surrender
or paid up value value or paid up value. value or paid up value
POLICY AMOUNT One can insure for any In fire insurance, the In marine insurance the
amount in life amount of the policy amount of the policy
insurance. cannot be more than can be the market
the value of the subject value of the ship or
matter. cargo
CONTINGENCY OF RISK There is an element of The event i.e., The event i.e., loss at
certainity. The event destruction by fire may sea may not occur and
i.e., death of maturity not happen. There is an there may be no claim.
or policy is bound to element of uncertainity There is an element of
happen. Therefore a and there may be no uncertainty
claim will be present. claim.

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